Intro
With a potential too-close-to-call upcoming election that could go either way, in the event of a Donald Trump win in the upcoming 2024 election, the real estate industry is poised for some significant changes. While political outcomes can often be unpredictable, understanding the potential benefits of a Trump win for real estate can help investors and industry professionals prepare for the future. In this blog post, we will explore 10 ways a Trump win might help the real estate industry in 2025 if Trump takes office.
Regulatory Reforms
One potential advantage of a Donald Trump win in the 2024 election for the real estate sector is the possibility of regulatory reforms designed to simplify existing processes. Historically, Trump has championed deregulation efforts, aiming to create a more streamlined, efficient landscape for businesses to operate within. In the context of real estate, this could translate into faster approvals for development projects, reduced bureaucracy when dealing with zoning and land use, and overall lower costs of compliance for real estate developers and investors. Such reforms may not only expedite the pace at which new projects can be launched but also improve the overall investment climate by minimizing governmental hurdles. This focus on easing regulatory constraints could significantly benefit the real estate industry by fostering a more conducive environment for growth and development, making it an attractive prospect for stakeholders looking to capitalize on opportunities in the sector.
An example of regulatory reform is the Tax Code that was changed by the Tax Cuts and Jobs Act (TCJA) that was signed by then President Donald Trump on December 22, 2017. Although this Act made changes in many areas such as standard deductions, personal exemptions and retirement savings, it also had changes for business such as reducing the corporate tax rate from 35% to 21%, increasing deductions for pass-through income, and allowed for immediate expensing of short-lived capital investments which allows for deductions related to certain improvements made to nonresidential real property. Nonresidential real property can include commercial property such as multifamily of five units or more, industrial related buildings, or office property as examples.
Tax Incentives and Policies
If there is a Donald Trump victory in the upcoming 2024 election, this could usher in a new era of tax strategies favorably positioned to bolster the real estate sector. Trump’s administration may look to extend or introduce tax incentives aimed at encouraging both individual and corporate investment into real estate. Potential measures could include further reductions in capital gains taxes for long-term property investments, which would incentivize holding onto properties and fuel market stability. Additionally, enhancements or expansions to existing tax deductions for real estate investors and developers, such as those related to depreciation, mortgage interest, and the opportunity to defer taxes on exchanged properties, could significantly reduce taxable income and increase net investment returns.
Moreover, special tax zones or credits for investing in underdeveloped areas could be prioritized, promoting urban renewal and rural development. Such initiatives would not only stimulate economic growth in those areas but also open up new avenues for investors looking for high-potential yet underexplored markets. The combination of these policies could create a more dynamic and financially attractive landscape for stakeholders across the spectrum of the real estate industry, from residential to commercial sectors. These hypothetical tax-related adjustments could provide a foundational support system that strengthens the real estate market’s resilience and growth potential, aligning with broader economic objectives of real estate investors and businesses within the real estate sector.
Continuing with the previous example of the Tax Cuts and Jobs Act, this Act increased the maximum deduction of depreciable business assets associated with real property from $500,000 to $1 million. The types of improvements now available to be expensed now include roofs, HVAC, fire protection and alarms systems, and even security systems. In addition, the new law also allowed used property that was acquired through commercial real estate deals to be 100% depreciable.
Another advantage of TCJA was the Act’s creation of Opportunity Zones. An Opportunity Zone is a population in a geographic area identified by a census as a low income community, or a non-low income community that shares a border with a low income community where the median family incomes are within 25% of each other when comparing the two communities. In 2019, Freddie Mac indicated in a report that there were over 8,700 Opportunity Zones across the nation representing about 35 million people! Each state chooses their own zones and can classify up to 25 percent of their low-income communities (as designated and qualified by the IRS) as Opportunity Zones. The Act created tax advantages for real estate investors such as capital gains tax deferment until 2026 or the sale of the property, a 10% reduction in the gain subject to tax if the investment is held for 5 years, a 15% reduction in tax if held for 10 years, and the ability to get tax free growth on an equity called the Opportunity Fund if capital gains are rolled over into that fund and the investment is held for 10 years. Policies like the creation of Opportunity Zones were meant to be a catalyst for economic growth and job creation to benefit low-income communities while providing tax benefits to investors.
Infrastructure Spending
In addition to tax incentives, the real estate industry could see an impact from increased infrastructure spending. The 2020 Trump campaign proposed a $1 trillion infrastructure plan to invest in cities, highways, bridges, transportation, water systems, the electrical grid, and other focus areas. Although existing program dollars were allocated to favor roads in rural areas, continued focus in rural areas could help support the trend of expansion further outside the immediate suburbs for both residential and commercial real estate.
Moreover, strategic infrastructure improvements (if focus is applied) can spur growth in previously underdeveloped or overlooked regions, opening up new markets for real estate investors and developers. Improved infrastructure can also lead to greater efficiency in logistics and supply chains, making industrial and commercial spaces more appealing to businesses. The ripple effect of these projects could extend far beyond the immediate vicinity, potentially elevating the national real estate market as a whole. In essence, robust infrastructure investment under a Trump administration could serve as a catalyst for widespread enhancement across various sectors of the real estate industry, creating a multitude of opportunities for growth and investment.
Emphasis on American Property Ownership
A victory for Donald Trump in the 2024 election could significantly underscore the value of American property ownership, aligning with his broader agenda of fostering domestic pride, economic autonomy, and American success. Any policy making it easier for Americans to purchase and own real estate could be a catalyst for increased American home ownership. Three current barriers to homeownership include higher mortgage rates, inflation and housing availability.
One of the Tramp/Vance 2024 platform Initiatives includes a promise to “End inflation, and make America affordable again”. This article discusses the impacts of inflation on the Housing Industry including homeowners, homebuyers and investors. On June 25, 2019, President Trump issued an executive order establishing a White House Council on Eliminating Regulatory Barriers to Affordable Housing. This council sought to address rising costs being felt by families in renting households and the lack of housing supply caused by regulatory barriers. This time around, Trump is calling for the opening up of more federal lands for housing which appears to revisit some of the goals of his previous council.
Measures to promote homeownership could not only encourage broader participation in the real estate market but also aim to strengthen communities by increasing investment in local areas. The ripple effects of these policies could see a revitalization of neighborhoods, with enhanced property values benefiting both new and existing homeowners. By prioritizing American ownership, the administration could foster economic growth across demographics, where the benefits of a robust real estate market are more widely distributed among the population, thereby promoting economic resilience and sustainability which is good for the country as a whole.
Commercial Real Estate Revitalization
Another Donald Trump 2024 Platform vision is to “Stop outsourcing, and turn the United States into a manufacturing superpower.” Policies favoring business growth and entrepreneurial endeavors are likely to increase the demand for various types of commercial spaces. From office buildings accommodating the burgeoning workforce of expanding corporations to retail outlets seeking prime locations to attract customers, the scope for commercial real estate is poised to widen significantly.
Furthermore, industrial real estates, such as warehouses and manufacturing facilities, might also see a surge in demand, driven by policies encouraging domestic manufacturing. This revitalization of the commercial real estate market would not only provide ample opportunities for developers and investors but also contribute to the broader economic recovery by creating jobs and stimulating local economies.
With a focus on fostering a pro-business environment, the potential growth in this sector could reflect a future administration’s commitment to reinforcing the nation’s economic infrastructure through strategic investments in commercial real estate to match the demand for business space.
In Conclusion
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